In this case you earn some profit indeed, since the 1bitBTC you bought can buy more shares now if you haven't bought earlier. It's the one who provided this 1 bitBTC bear the risk, if it's you, you can easily close the position without loss.

As a market maker, we have to remain hedged at all times - same quantities of bitBTC and BTC available on both sides of the market. Selling bitBTC for BTS is not an option as we are not long any one particular currency,

A. You misunderstood what I was saying and pretty much repeated the same thing I said, but added sunny skies and rainbows. Someone that wanted to monopolize the BTS volume traded on centralized exchanges may come along sooner than you think, and there is no way of stopping them.

How are they going to do that when you cannot transfer the asset?

That's a pretty terse answer.  But I think you're trying to say that it's difficult to do arbitrage on external markets, whereas arbitrage on the internal DEX markets can be done very efficiently.  That makes sense.  I wonder why no one has stated this clearly after MULTIPLE questions about the benefit of eliminating BTS trading from the centralized exchanges! 

Not just difficult, but impossible. If you cannot transfer BTS, you cannot arbitrage externally at all, which implies that the price of BTS can only be affected by DEX trades.

There is a more significant point as well, in that the blockchain itself is ideally placed to do instant arbitrage between markets and to redistribute this to BTS holders as dividends.

Quote from: monsterer on February 16, 2016, 08:19:49 am

Quote from: tbone on February 16, 2016, 06:48:19 am

Ok, let me rephrase the question.  Let's first consider that (both now and under your proposal) there are and will be multiple BTS/USD markets, multiple BTS/BTC markets, multiple BTS/CNY markets, etc.  So the question is, why would having all of those markets trade only on the DEX be much better for the peg than the current situation where some of those markets are (and some are NOT) traded on the DEX?

No external arbitrage means no need for a feed price - the prices can come from the orderbook (although price at time 0 is undefined).

Why does it matter if the markets are external or on the DEX?  You still have to factor many different BTS markets.  The only difference is that there would be no BTS feeds for the witnesses to bother with.

The 'only difference' you just described impossible with external arbitrage.

Quote from: monsterer on February 13, 2016, 11:06:31 pm

Here's a question for @tonyk - with external arbitrage now being impossible, would it be possible to have the blockchain itself as a market maker with internal arbitrage? Price risk would be mitigated by the fact that the blockchain can act instantly to arbitrage between internal markets.

I do not know if would call it arbitrage, but finding other paths (say selling bitUSD for bitBTC) and using bitUSD-BTS->bitEth->bitBTC or whatever is the cheapest path instead; is something that intrigues me as well.
The question is thus more for you than for me - do you think it is computationally cheap enough for the blockchain to do it itself. My almost totally uneducated guess is - it should be doable. Your opinion?

There ought to be genuine arbitrage opportunities in the internal markets - e.g. triangular arbitrage between bitUSD/BTS, bitUSD/bitCNY,  bitCNY/BTS. The blockchain would always be the one profiting from any opportunity because it can act instantly before any other participants.

- all exchanges which has bts on their exchange confirmed that they are aware of migration

Not just that, but this:

- all exchanges must force users to withdraw all their BTS or lose it forever

@tonyk Interesting idea - I'd like to hear more on why a price feed isn't necessary in order to value BTS->USD in this model.

Just saw this on BCT; it's a simulation of a blockchain market maker in the unreleased eMunie, using BTC as a test bed:

https://bitcointalk.org/index.php?topic=1357914.0

I'd love to hear what @bytemaster has to say on the subject.